Canadian Dollar subdued ahead of key Bank of Canada rate decision
The Bank of Canada interest rate decision is set to be the highlight of the economic calendar this week, with most economists predicting that Canadian policymakers will leave interest rates on hold at 1.75 percent and continue to talk down the prospects of any rate hikes this year. After embarking on a series of aggressive rate hikes during 2018 the Bank of Canada has been on hold for the last four months as the global economic climate cooled, while domestic data points have softened.
Bank of Canada Governor Stephen Poloz has recently said that he expects the weakness in the Canadian economy to be only temporary. Data points from the Canadian economy also saw a pick-up last month, with retail sales increasing the most since September 2018, breaking the recent trend of negative monthly retail sales figures. Monthly inflation has also bounced back sharply, with the February and March CPI inflation increasing the most in over a year.
The recent sharp increase in oil prices has had a knock-on effect on the Canadian economy, giving the Canadian economy a much- needed boost. Some domestic data points have worsened, with the nations monthly employment change declining by 7,000 last month, while the Canadian manufacturing sector narrowly missed falling into a contraction last month, with its weakest PMI reading since 2016.
Given that some data points are improving and some have worsened, the Bank of Canada is unlikely to sound too upbeat at this weeks meeting. However, with signs now emerging that the Chinese economy is stabilizing and oil prices trending higher, the central bank still has time to asses economic data further, before providing definitive forward guidance on the likely direction of interest rates.
The Canadian Dollar has recently been overwhelmed by the strong demand for the greenback, with the USD/CAD pair pressing towards the 1.3400 level. The Canadian Dollar has failed to rally alongside the recent up move in oil prices, leaving many traders sidelined or caught off-guard, as the Canadian Dollar usually benefits from higher oil prices.
USD/CAD Daily Mountain Chart | Source: ActivTrader
Technically, the USD/CAD pair had a bullish weekly price close last week above the 1.3380 level, leaving the 1.3466 level as key resistance, with the 1.3700 level the main hurdle. USD/CAD buyers have much work to negate the bearish head and shoulders pattern on the daily time frame chart which has been looming over the pair since early March.
Written by Nathan Batchelor, External Analyst
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